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8-K - FORM 8-K - UNITED SURGICAL PARTNERS INTERNATIONAL INCd80020e8vk.htm
Exhibit 99.1
(UNITED SURGICAL PARTNERS LOGO)
Contact:   Mark A. Kopser
Executive Vice President and Chief Financial Officer
(972) 713-3500
UNITED SURGICAL PARTNERS INTERNATIONAL
ANNOUNCES FOURTH QUARTER AND YEAR-END 2010 RESULTS
Dallas, Texas (February 28, 2011) — United Surgical Partners International, Inc. (“USPI” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2010.
Fourth Quarter Financial Results
     For the quarter ended December 31, 2010, consolidated net revenues increased 3.5% to $154.2 million compared with $149.0 million in the prior year period. Operating income for the fourth quarter was $53.0 million as compared with $50.9 million for the prior year period. Operating income margin for the fourth quarter of 2010 was 34.3% versus 34.2% in the prior year period. For the quarter, adjusted EBITDA less noncontrolling interests was $55.4 million compared with $51.8 million in the prior year period.
     The financial results for the fourth quarter were driven by systemwide revenue growth of 13%, consisting of 8% U.S. same-facility revenue growth and the remainder being due to acquisition activity.
     Cash flows from operating activities for the fourth quarter totaled $31.3 million compared with $38.6 million for the prior year period. During the fourth quarter, the Company and its consolidated subsidiaries invested approximately $3.7 million in maintenance capital expenditures and an additional $8.4 million to develop new facilities and expand existing facilities.
Full Year Financial Results
     For the year ended December 31, 2010, consolidated net revenues were $576.7 million compared with $593.5 million in the prior year. On a year-over-year basis, consolidated net revenues were reduced by $14.6 million due to the deconsolidation of facilities that are now accounted for under the equity method. Operating income for 2010 was $210.5 million as compared with $198.3 million for 2009. Operating income margin for the year ended December 31, 2010, increased 310 basis points to 36.5% from 33.4% in the prior year. For the year, adjusted EBITDA less controlling interests was $200.2 million as compared with $194.0 million in the prior year period.
     The financial results for the year were driven by systemwide revenue growth of 7%, consisting of 5% U.S. same-facility revenue growth and the remainder being due to acquisition activity.
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 2
February 28, 2011
     Cash flows from operating activities for the year ended December 31, 2010, totaled $169.1 million compared with $180.6 million for the prior year. This decrease was primarily due to non-recurring expenses and an increase in cash tax payments. During 2010, the Company and its consolidated subsidiaries invested approximately $18.7 million in maintenance capital expenditures and an additional $21.3 million to develop new facilities and expand existing facilities.
Systemwide Financial Results
     Due to the Company’s partnerships with physicians and not-for-profit healthcare systems, the Company does not consolidate the financial results of the majority of its facilities. While revenues of the Company’s unconsolidated facilities are not recorded as revenues by USPI, equity in earnings of unconsolidated affiliates is a significant and growing portion of the Company’s overall earnings. To help analyze results of operations, management uses systemwide operating measures such as systemwide revenue growth, which includes revenues of both consolidated and unconsolidated facilities. In addition to overall systemwide revenue growth, USPI calculates growth rates and operating margins for the facilities that were operational in both the current and prior year periods, a group the Company refers to as same-store or same-facility. This group also consists of both consolidated and unconsolidated facilities. At December 31, 2010, 130 of the 189 facilities the Company operated were not consolidated.
Revenue Analysis
     For the full year, the systemwide revenues of the facilities operated by the Company increased 7%, while consolidated revenues decreased. Consolidated and unconsolidated revenues were also affected by certain transactions and a stronger U.S. dollar. The table below lists the key drivers of year-over-year changes in revenues.
                                 
    Three Months Ended     Year Ended  
    December 31, 2010     December 31, 2010  
    As Reported     Unconsolidated     As Reported     Unconsolidated  
    Under GAAP     Affiliates     Under GAAP     Affiliates  
Total revenues, period ended December 31, 2009
  $ 148,967     $ 322,812     $ 593,475     $ 1,178,114  
Add: Revenue from acquired facilities
    2,231       21,556       8,070       45,909  
Less: Revenue of disposed facilities
          (2,324 )           (12,169 )
Less: Revenue of deconsolidated facilities
    (1,536 )     1,536       (14,571 )     14,571  
Impact of exchange rate
    (895 )           (1,199 )      
 
                       
Adjusted base period
    148,767       343,580       585,775       1,226,425  
(Decrease) increase from operations
    4,179       33,992       (9,366 )     97,093  
Non-facility based revenue
    1,266       49       256       5,523  
 
                       
Total revenues, period ended December 31, 2010
  $ 154,212     $ 377,621     $ 576,665     $ 1,329,041  
 
                       
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 3
February 28, 2011
Development Activity
     During the year, the Company added 27 facilities and completed the sale of its interest in three facilities. In addition, the Company sold its subsidiary, American Endoscopy Services, in December. At December 31, 2010, the Company had six facilities under development, of which five were under construction. In addition to the three divestitures, the Company deconsolidated the financial results of two facilities that it continues to operate.
Other Items
     In the prior year ended December 31, 2009, the Company’s tax provision included the recognition of a $31.2 million U.S. income tax benefit. This benefit, which encompasses the Company’s net operating loss carryforwards and most other U.S. deferred tax assets, was recognized because the Company considers it more likely than not that taxable income will be generated in the future to allow those assets to be realized.
     In order to analyze operating results, various expenses have been identified below in order to assist in understanding the Company’s operating and full year results. These items are discussed further in the Company’s 2010 Form 10-K.
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Operating income as reported
  $ 52,970     $ 50,882     $ 210,516     $ 198,295  
Losses on deconsolidations, disposals and impairments
    5,842       9,630       6,378       29,162  
Impairment of unconsolidated affiliate
    3,676             3,676        
Expense related to previous acquisition and facility purchase option
                6,000        
Acquisition costs
    2,713       98       3,385       98  
VAT assessment
                965       (965 )
Depreciation and amortization
    7,671       7,714       29,799       31,165  
 
                       
Adjusted EBITDA
    72,872       68,324       260,719       257,755  
Noncontrolling interests
    (17,481 )     (16,515 )     (60,560 )     (63,722 )
 
                       
Adjusted EBITDA less noncontrolling interests
  $ 55,391     $ 51,809     $ 200,159     $ 194,033  
 
                       
Summary
     Commenting on the results, William H. Wilcox, USPI’s chief executive officer, said, “We are pleased with our fourth quarter volume growth and acquisition activity, and we believe it is representative of favorable momentum going into 2011.”
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 4
February 28, 2011
     The live broadcast of USPI’s fourth quarter and year-end conference call will begin at 10:00 a.m. Eastern Time on February 28, 2011. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast. A link to these events can be found on the Company’s website at www.unitedsurgical.com or at www.earnings.com. Additional financial information pertaining to United Surgical Partners International may be found by visiting the Investor Relations section of the Company’s website.
     USPI, headquartered in Dallas, Texas, currently has ownership interests in or operates 190 surgical facilities. Of the Company’s 185 domestic facilities, 133 are jointly owned with not-for-profit healthcare systems. The Company also operates five facilities in the United Kingdom.
     The above includes forward-looking statements based on current management expectations. Numerous factors exist that may cause results to differ from these expectations. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties relating to the Company, including without limitation, (i) reduction in reimbursement from payors; (ii) the Company’s ability to attract physicians and retain qualified management and personnel; (iii) the Company’s significant leverage; (iv) geographic concentrations of certain of the Company’s operations; (v) risks associated with the Company’s acquisition and development strategies; (vi) the regulated nature of the healthcare industry; (vii) the highly competitive nature of the healthcare business; and (viii) those risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission. Therefore, the Company’s actual results may differ materially. The Company undertakes no obligation to update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
     Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests are not measures defined under generally accepted accounting principles (GAAP). The Company believes Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests are important measures for purposes of allocating resources and assessing performance. Adjusted EBITDA, which is computed by adding operating income plus depreciation and amortization and non-routine charges affecting comparability is commonly used as an analytical indicator within the healthcare industry and also serves as a measure of leverage capacity and debt service ability. Adjusted EBITDA less noncontrolling interests, which is computed by subtracting net income attributable to noncontrolling interests from Adjusted EBITDA, adjusts both years’ Adjusted EBITDA to reflect that the Company does not own 100% of each facility. Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests should not be considered as measures of financial performance under GAAP, and the items excluded from Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests are significant components in understanding and assessing financial performance. Because Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests are not measurements determined in accordance with GAAP and are thus susceptible to varying calculation methods, Adjusted EBITDA and Adjusted EBITDA less noncontrolling interests as presented by United Surgical Partners International may not be comparable to similarly titled measures of other companies.
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 5
February 28, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Statements of Income

(in thousands, except number of facilities)
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Revenues
  $ 154,212     $ 148,967     $ 576,665     $ 593,475  
 
                               
Equity in earnings of unconsolidated affiliates
    20,162       18,661       69,916       61,771  
 
                               
Operating expenses:
                               
Salaries, benefits and other employee costs
    42,506       40,322       156,213       160,278  
Medical services and supplies
    26,063       25,604       97,940       99,510  
Other operating expenses
    26,227       23,126       99,075       89,347  
General and administrative expenses
    10,908       9,060       38,202       38,769  
Provision for doubtful accounts
    2,187       1,290       8,458       8,720  
Losses on deconsolidations, disposals and impairments
    5,842       9,630       6,378       29,162  
Depreciation and amortization
    7,671       7,714       29,799       31,165  
 
                       
Total operating expenses
    121,404       116,746       436,065       456,951  
 
                       
Operating income
    52,970       50,882       210,516       198,295  
Interest expense, net
    (17,224 )     (16,982 )     (69,240 )     (67,612 )
Other, net
    (14 )     113       708       373  
 
                       
Income from continuing operations before income taxes
    35,732       34,013       141,984       131,056  
Income tax (expense) benefit
    (8,091 )     (9,256 )     (32,328 )     879  
 
                       
Income from continuing operations
    27,641       24,757       109,656       131,935  
Discontinued operations, net of tax
    (7,813 )     281       (7,003 )     1,453  
 
                       
Net income
    19,828       25,038       102,653       133,388  
Less: Net income attributable to noncontrolling interests
    (17,481 )     (16,515 )     (60,560 )     (63,722 )
 
                       
Net income attributable to USPI’s common stockholder
  $ 2,347     $ 8,523     $ 42,093     $ 69,666  
 
                       
 
                               
Supplemental Data:
                               
Facilities operated at period end
    189       169       189       169  
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 6
February 28, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Balance Sheets

(in thousands)
                 
    Dec. 31,     Dec. 31,  
    2010     2009  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 60,253     $ 34,890  
Accounts receivable, net of allowance for doubtful accounts of $7,481 and $8,160, respectively
    50,082       54,237  
Other receivables
    15,242       15,246  
Inventories
    9,191       8,789  
Deferred tax assets, net
    14,961       16,400  
Other
    14,682       14,382  
 
           
Total current assets
    164,411       143,944  
 
               
Property and equipment, net
    202,260       198,506  
Investments in unconsolidated affiliates
    393,561       355,499  
Goodwill and intangible assets, net
    1,587,876       1,602,187  
Other
    24,631       25,256  
 
           
Total assets
  $ 2,372,739     $ 2,325,392  
 
           
 
               
LIABILITIES AND EQUITY
 
               
Current liabilities:
               
Accounts payable
  $ 23,488     $ 23,475  
Accrued expenses and other
    218,786       210,148  
Current portion of long-term debt
    22,386       23,337  
 
           
Total current liabilities
    264,660       256,960  
 
               
Long-term debt
    1,047,440       1,048,191  
Other liabilities
    157,820       158,373  
 
           
Total liabilities
    1,469,920       1,463,524  
 
               
Noncontrolling interests — redeemable
    81,668       63,865  
 
               
USPI stockholder’s equity
    786,757       757,952  
Noncontrolling interests — nonredeemable
    34,394       40,051  
 
           
Total equity
    821,151       798,003  
 
           
Total liabilities and equity
  $ 2,372,739     $ 2,325,392  
 
           
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United Surgical Partners Announces Fourth Quarter and Year-End 2010 Results
Page 7
February 28, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Key Operating Statistics
                         
    Three Months Ended December 31,
    2010   2009   % Change
Systemwide statistics (in thousands):
                       
Revenue
  $ 516,826     $ 459,557       12.5 %
 
                       
Systemwide same-facility statistics(1) (2):
                       
United States:
                       
Facility cases
    212,023       206,770       2.5 %
Net revenue/case
  $ 2,282     $ 2,160       5.6 %
Net revenue (in thousands)
  $ 483,792     $ 446,624       8.3 %
Facility operating income margin(3)
    29.5 %     28.9 %   60 bps
 
                       
United Kingdom:
                       
Adjusted admissions
    5,272       5,394       (2.3 %)
Net revenue/adjusted admission
  $ 5,010     $ 5,026       (0.3 %)
Net revenue/adjusted admission (at constant currency translation rates)(4)
  $ 5,010     $ 4,793       4.5 %
Net revenue (in thousands)
  $ 26,413     $ 27,109       (2.6 %)
Facility operating income margin(3)
    21.4 %     22.6 %   (120) bps
 
                       
Other:
                       
Total consolidated facilities
    58       60          
 
(1)   Excludes facilities in their first year of operations. Includes facilities accounted for under the equity method as well as consolidated facilities.
 
(2)   Statistics are included in both periods for current year acquisitions.
 
(3)   Calculated as operating income divided by net revenue.
 
(4)   Calculated using fourth quarter 2010 exchange rates. The Company believes net revenue per adjusted admission is an important measure of the United Kingdom operations and that using a constant currency translation rate more accurately reflects the trend of the business.
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